The Franchise Affair - Key Recent Developments Relevant To Franchising

Franchising has been a means of commercialising products and

services since the 1850s when Isaac Singer who had made

improvements to an existing model of a sewing machine wanted to

increase the distribution of his machines. His efforts, though

unsuccessful in the long run, resulted in some of the first

franchises. Today, franchising is used in more than 70 industries

and that generates more than $1 trillion in U.S. sales annually.

This article reviews some recent key legal developments relevant to

franchising.

The Nature Of A Franchise Agreement

The 'stand out' case in recent times is Jani-King GB v

Pula Enterprises (2007). This looked at the nature of a franchise

agreement in relation to the terms which might be implied into to.

It also considered the extent to which the franchisor is subject to

an obligation to act reasonably towards the franchisee.

Jani-King, based in the USA, is the world's largest

commercial cleaning franchise company and Jani-King GB is

responsible for its UK operations. Jani-King GB grants franchises

to UK franchisees and provides them with training in the Jani-King

cleaning system and a level of initial business from cleaning

contracts procured by Jani-King.

Pula Enterprises took a Jani-King franchise. Pula then purported

to terminate its franchise agreement for reasons which were not

clearly articulated but revolved around a series of alleged

breaches of the franchise agreement by Jani-King.

Pula argued for a very broad term to be implied in the franchise

agreement "as a matter of necessary implication and/or by

operation of law" that the franchisor would not act in such a

way as to "destroy or seriously damage the relationship of

trust and confidence" between the parties". This was

without reference to any of the express terms of the agreement.

The judge rejected this, for three separate reasons:

There was no necessity to imply such a term: the contract

worked perfectly well without it.

In any "complex commercial contract of this sort"

there is no room for such an implied term. Where the parties have

taken the trouble to spell out the terms of their contractual

relationship, the courts should be very slow to imply any

additional terms, particularly one couched in general terms.

The parties to a franchise agreement are in "a

relationship which is much closer to an ordinary commercial

relationship than one between employer and employee". The

judge cited with approval previous cases which held that the nature

of a franchise agreement is similar to the relationship between

lessor and lessee (Kall Kwik Printing) and close to a

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